The luxury industry is a market segment in constant growth and one that will continue to grow despite the dramatic effects of the spread of Covid-19. The sector has been able to transform itself – like fashion industry – albeit with obvious limits in terms of reactivity and flexibility, and has passed over time from a concept of “luxury as a product” to “luxury as an experience”, while managing to design and build a rich Customer Experience.
In this post, we’ll take a look at the luxury industry, from its origins to drivers of change. We will also try to clarify the distinctive aspects of the “luxury” object from the point of view of different disciplines: economics, sociology, psychology, and finally looking at the impact of luxury marketing (source: The Luxury Strategy: Break the Rules of Marketing to Build Luxury Brands, Jean-Noel Kapferer and Vincent Bastien, 2012).
The origins of the luxury industry
The origins of luxury seem to be found in the most ancient spiritual and religious practices, those of the burial of the dead. An almost paradoxical yet revealing origin, given that luxury is traditionally associated with transient things. In reality beauty and rarity are conceptually linked to mortality and therefore to our fragility as human beings.
The most ancient civilizations: luxury as a device of spiritual and material elevation
The objects found in the tombs of distant eras bear witness to the relationship between wealth, power, and social class. In ancient times, the most precious jewels and status symbols — food, weapons, horses, even ships — were what distinguished the tombs of certain people as belonging to a specific social group.
The highly hierarchical structure in which societies like the Egyptians, for example, would be reflected in the objects found in the tombs, and the pomp and refinement of some funerary outfits would distinguish the groups at the top of this structure. In those times, such luxuries were reserved for a small group of elites such as the sovereign, his wife, or the high priest. However, over time, luxury has evolved, becoming more democratized and no longer exclusive or necessarily extraordinary.
The debate on the usefulness of luxury, still very topical today, was perhaps already raging in those distant days. While some considered luxury to be a useless extravagance in the face of the extremely harsh living conditions of the majority of the population, others saw it as a powerful device capable of creating the conditions for artistic innovations and for the conception of manufacturing techniques, which even the lower groups of the population could benefit from over time. Luxury would then arise as a way of overcoming the materiality with which we inevitably associate it, representing first of all a perspective of transcendence and secondly a possibility, however remote, of social elevation.
Classical Greece and the Roman world: luxury as a reason for ideological conflict
From ancient Greece to the present day, crossing geographical and temporal boundaries, the concept of luxury has been the subject of constant dispute between those who recognized its “aspirational” scope and those who conceived it as an enemy of morality, rationality, modesty, and virtue. Some ancient societies frowned upon the excess and lavishness of certain items that were only attainable by those with abundant financial resources, and the term “luxury” had a negative connotation.
19th and 20th century: towards a social legitimation of luxury
The radical transformation of Western society that took place during the 18th century had a profound impact on the concept of luxury, both as a concept and in its most concrete manifestations of products and services.
In the 19th century, Adam Smith’s liberalism extolled trade and luxury as the engine of economic growth and one that also had a positive impact on all social classes. At the same time, the English thinkers of the 18th century, and in particular David Hume with his theory of “moderate luxury”, gave a philosophical justification to the coexistence of the two concepts, “luxury” and “morality”.
After the Industrial Revolution, which produced an increase in the general quality of life, more and more people were able to afford some of the luxuries once only available to the wealthy, while at the same time helping to reconfigure the very definition of “luxury.”
The wide social changes of the 20th century ultimately led to more of a social legitimation of luxury items.
A stratified definition: economic, sociological, psychological
From an economic point of view, luxury products are characterized by a demand that increases more than proportionally to the increase in income, unlike what generally happens in other markets. They therefore present a high elasticity of demand to income: an increase in high income earners increases the consumption of high-end goods.
Luxury has gradually invaded the modern economy, both in terms of products and activities and geographically:
- at the beginning of the 20th century, French fashion houses (Louis Vuitton, Cartier, Hermès);
- between World War 1 and 2, perfume (Chanel No. 5);
- after the Second World War, the luxury sector took off and became an industry in its own right, appearing as a “niche” version in many specialized sectors.
Luxury was traditionally an industry in times of peace, which is why it is in the post-war period that its development begins and continues sustained until today. Luxury is a sector so resilient and rich in resources that, “although it has been hit hard by the current pandemic and the associated national lockdowns and air travel restrictions, suffering a 20% drop in revenue in 2020, the long-term trend is expected to remain positive, with growth of 2-3% between now and 2025, as estimated by the Altagamma Bain Monitor” (source: ilsole24ore.com).
The concept of luxury is not socially neutral: it is a complex cultural construction produced within historically defined societies. In addition to historical development and economic evidence, it also has a sociological dimension, because it also has to do with social stratification, the notion of practical utility and waste, and the distribution of wealth.
The entry of luxury into the consumer society has amplified, distorted, and strengthened some of the motivations that for centuries have moved the select few users and created new ones as a result of the expansion and differentiation of the target audience. Thus luxury consumption today is based on two reasons:
- “external” and connected to need to distinguish oneself externally;
- but also on “internal” motivations linked to the personal sphere of emotions.
In both cases, probably more so than in other markets, the domain is not so much the materially defined one of “need” as the psychological one of “desire”.
The four drivers of luxury marketing strategies
From the 20th century onwards, the luxury sector ceased to be an entity disconnected from industrial society and its system of production and consumption. A growing share of the population began to gain access to the luxury market, thanks to improved economic conditions and to the increasingly structured use of advertising communication and marketing by brands that had to emerge by overcoming stronger competition every day. To be able to formulate an effective discourse on the brand and for the brand, luxury marketing must first of all recognize and understand the four drivers that have characterized the development of the industry for centuries, and must be able to integrate them into its practical strategies.
- Democratization implies that more and more consumers, widening the base of potential buyers, have access to the world of luxury. The downside is the vulgarization of the product, service, or experience. Marketing will then have to intervene by building an evocative and specific imagery and narrative around the product.
- The increase in spending power is the most evident driver for the growth of luxury goods. Greater spending power means greater availability of money and time (both equally indispensable). Starting from growth in product consumption (people eat, dress, and live “a little better”), luxury brands’ marketing strategies will have to identify and engage qualified leads and track realistic and satisfying Customer Journeys for them, guiding them towards the purchase of high-end or premium products. They will also have to try to capitalize on extravagant consumption, a phenomenon of luxury itself, which favors the concentration of discretionary spending power on a few products rather than distribution among many.
- Globalization is a driver that, in conjunction with certain conditions, can accelerate the increase in spending power (e.g. through wage increases) contribute to lower prices, offer access to completely new luxury products (e.g. silk, spices, sugar in the 16th century for the West, French wines in the 20th century world), or create interest in cultural experiences that did not exist before. It can be a factor in reducing the negative effects of social stratification. Globalization can, however, lead to a levelling out of all cultures. Marketing in the luxury sector is faced with an opportunity that is also a challenge and a translation effort: to test the social function of luxury, blending availability and accessibility with exclusivity.
- Communication is the last of the great drivers of change in the sector. The development of global media, the advent of television, and the proliferation of digital touch points has made everyone more aware of the richness and cultural diversity of our planet and the many possible ways of life, even within the society in which we live. This means that a vast “field of possibilities” opens up before each of us from which we can choose to build our own personal basket of consumption that corresponds more profoundly to us.
This reflection on the scenarios offered by the proliferation of media obviously applies to the marketing of any product, but it takes on a precise and fundamental meaning when we talk about the marketing of the luxury industry, for two distinctive features, which we will only mention here but which we will go into in more detail in our next articles (source: Digital Luxury: Transforming Brands and Consumer Experiences – Wided Batat, 2019):
- the initial reluctance of luxury brands towards digital media, which has given way to a considerable capacity for experimentation and great creative freedom;
- the specificity of the Luxury Experience and even more so of the Digital Luxury Experience, which combines multi-channel, the mix of innovative technologies, and the transversality and topicality of the themes in a revolutionary way.